JCI may land on its feet

[miningmx.com] — THE latest update on the proposed Randgold & Exploration (R&E)/JCI merger confirms that, as a reader argued in a letter to me, JCI may have more value than I suggested. But whether this will be accepted by all R&E minorities is another question.

There are still many imponderables, but assuming a R1.2bn settlement of R&E’s claims on JCI, the update puts R&E’s net asset value (NAV) at R2.03bn or 28c/share, and JCI’s at NAV R846m or 0.4c/share. At a settlement of R1.5bn, R&E’s NAV becomes R2.33bn or 28c and JCI’s R546m or 0.3c.

The suggestion is that, on these calculations, merger terms should give ex-JCI shareholders between 19% and 29% of the merged company, in direct proportion to its share of the joint assets.

A figure has also now been put on the number of shares each company may be able to cancel because they can be identified as having been issued for no real value (there may be more, but they can’t be identified or traced).

At R&E this is three million out of a nominally issued 74.8 million shares, or 4% of the total. Not surprisingly, JCI may be able to cancel as many as 317 million of its 2.24bn shares, or about 14%. The above NAV figures take these cancellations into account.

So where does this leave us?

For the sake of argument, and extremely hypothetically, let’s take the midpoint and assume that JCI is to end up with 24% of the merged company. With R&E having 71.8 million post-cancellation shares in issue, the issue of 22.7 million shares would be equivalent to 24% of the enlarged equity.

JCI will have 1.91bn shares in issue, of which R&E already holds 223 million, leaving roughly 1.69bn to be acquired. That would give a ratio of about one new R&E for every 75 JCI. It’s not clear that this would be adjusted for JCI’s crossholding of 6.2 million R&E shares.

Well, after the R&E meeting earlier this month, Trinity Hoildings’ Quinton George said that a ratio of anything under 100:1 would be too favourable to JCI, so I don’t suppose he’ll be too impressed.

We can also compare this ratio to the last pre-suspension share prices of 890c for R&E and 16c for JCI, a ratio of 56:1. I’m not sure that a ratio of 75:1 adequately discounts what we have since learnt about the relative plundering of the two companies.

Then there are all the imponderables. I won’t go into them in detail, but, briefly, they include JCI’s interest in Boschendal, which its directors believe could in the long run be worth more than the book value of R140m; its investment in Jaganda preference shares, subject to litigation but for this exercise at put at R268m, midway between the cost of R90m and market value of R478m; the Investec loan agreement, at present a R338m liability in JCI’s balance sheet and also subject to litigation; and the mineral rights.

My correspondent this week believes the mineral rights have a huge potential value. Well, maybe; but they already stand in the books at R400m (R&E) and R350m (JCI) respectively. We are told this is “conservative’. Well, they have been there for 100 years or so, and nobody has yet turned them to account, while the present value of any exploitation in (say) 10 years or so is negligible.

Resolution of most of these issues could favour JCI, but on the other hand remember that R&E’s total claims against JCI are not R1.2bn or even R1.5bn but close to R6bn. And I must repeat that the mediators have made it clear that they think R&E may well have sustainable claims against JCI in excess of its NAV.

In passing, the statement also refers to R&E’s possible successful pursuit of claims against third parties. Should these materialise, they would benefit R&E in any potential exchange ratio.

There are other considerations, too. We are told that a confidentiality agreement between R&E, JCI and certain unspecified key shareholders lapsed on March 14, which has made it possible to provide this extra information. Some of it was asked for and withheld from shareholders at last week’s special meeting.

Will minorities now renew their request for other information they were denied? Could we be faced with yet another acrimonious special meeting?

The perception seems to be spreading that the group is being tidied up in preparation for a bid from Aflease Gold, which owns about 13.5% of R&E and is understood to have an option on Trinity’s 16%. It’s worth pointing out that had Aflease, which is thought to have supported the board, voted the other way last week, Johann Blersch and Tom Dale would still be directors, Chris Nissen wouldn’t, and Dave Nurek and Brenda Madumise might just have scraped home.

So Aflease in effect has the swing vote, making its attitude to any proposal crucial. It may well be one of the “significant shareholders’ provided with information under the confidentiality agreement, but that doesn’t mean it’s bound to support any proposal that eventually emerges.

We are warned, quite properly, that there could in future be major variations in many of these figures. And no time scale has been put on any formal proposal. So the only thing we can be certain of is that this isn’t the last time I’ll be writing about the Kebble legacy.

The writer unhappily for some inexplicable reason owns shares in JCI, but they were worth only about R10 at the presuspension price.